Manufacturing contracts further

It's a measure of the state of manufacturing that a slowdown in the rate of its contraction is seen as good news.

A survey by the Australian Industry Group showed the rate of contracting slowed a little in February compared with the preceding three months.

But, at 48.6, the level of the performance of manufacturing index (PMI) was still below 50, the break-even point between growth and contraction in the industry.

The PMI is made up of a combination of indicators of production, new orders, deliveries, inventories and employment.

Since the onset of the global financial crisis (GFC) in 2008, it has signalled a nearly continuous a decline in manufacturing.

The February reading was up only slightly from January's 46.7, which, in turn, was just about in line with the average of the past 12 months, 46.5.

The only real glimmers of light since the GFC have been a surge in late 2009 and 2010 as economic stimulus policies dragged the economy back onto a growth path, and a brief uptick in August and September last year as the Australian dollar headed lower.

Even so, there are some promising signs in the latest report.

The production component of the PMI rose to 51.5 in February, compared with 45.2 in January and a 12-month average of 46.0.

And the new orders index rose to 50.0 in February from 48.8 in January and an annual average 46.1.

On the other hand, the exports index tells a much drearier story, coming in at an abysmal 25.8, down from 34.1 the previous month and 29.2 in the year leading up to February.

Not surprisingly, in light of these results and the headlines cataloguing the problems facing the industry, the employment index remained in the red, at 47.3 in February.

That was down from 48.3 in January and not much different from the annual average of 46.7, so the prospect of any improvement in employment in manufacturing remains dim.